How to create and render clouds in blender cycles
Since the initial commit in January 2014, cycles has had volume support.

You can get a development version or any version newer than 2.70 to use it.

To render clouds with it, try sculpting a cloud shape (dynamic topology is useful) or modeling a low poly cloud with a subsurf and a displace modifier:



Smoke simulations look better, but will require more computation time to be baked.

For the cloud material, use a volume scatter node:



Result:





Make sure you set the scattering bounces pretty high in Render settings > Light paths if you want bright, fluffy clouds.